GBP/USD latest: bears take hold as the Fed outshines the BoE

The combination of central bank meetings this week has weighed on GBP/USD. The pair has shed over 1.75% in the past two days. The BoE kept rates unchanged at 5.25% at its meeting in March as widely expected. Governor Andrew Bailey said the British economy is moving in the right direction for the bank to start cutting rates, which gave a dovish tone to the meeting. The vote split also helped, as the two hawkish dissenters from February (Haskel and Mann) moved into neutral territory, voting to keep rates unchanged rather than hike 25bps. Dovish dissenter Dhingra kept her vote unchanged from February, opting for a 25bps cut.

The 8-1 vote split is more dovish than the 2-6-1 from the previous meeting, which suggests members of the Monetary Policy Committee (MPC) are becoming more comfortable with the idea of less restrictive policy in the near future. This shift in tone weighed on the pound but the momentum was not symmetrical amongst its major peers. The majority of the pullback was seen against the US dollar despite the rebound in GBP/USD post-Fed meeting on Wednesday. The dovish BoE and Swiss National Bank (SNB) – which delivered the first rate cut out of the majors – combined with resilient PMI data has allowed the US currency to recover its bullish path.

It is also important to note that the takeaway from the Fed meeting seemed dovish at first given the majority of the FOMC members continue to expect three rate cuts this year, it tells a different story upon closer examination.

Source: capital.com, federalreserve.gov

As can be seen in the image above, whilst the median remains at three rate cuts, the March dot plot is more hawkish than the December one. In December, five FOMC members were expecting more than three cuts in 2024, and that was reduced to just one in March. Moreover, there are now four members who expect less than two cuts in 2024, versus three members back in December. So, despite Powell’s apparent desire to start cutting soon, it is evident from the changes in the dot plot graph that there is still a way to go. This realisation could be driving some of the bullishness in the dollar.

Looking ahead, GBP/USD is likely to remain at the mercy of the dollar. With a lacklustre economic calendar next week, markets are likely to continue the path of least resistance, which seems to be lower for GBP/USD. The pair is currently testing some areas of support, the 200-day SMA being the first one at 1.2590. Beyond that, 1.2575 has halted recent declines, followed by 1.2537.

GBP/USD daily chart

Past performance is not a reliable indicator of future results.